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How profitable are Cryptocurrency exchanges?

Cryptocurrencies like Bitcoin have become so ubiquitous that it’s surprising they’ve only been around for eleven years.  Since the emergence of cryptocurrency in 2009, one thing has become abundantly clear and that is the high profit potential associated with cryptocurrency exchanges.  In fact, digital-asset exchanges are emerging as one of the biggest winners of the cryptocurrency boom and are generating millions of dollars in profits.

To put it simply, a cryptocurrency exchange is an online platform in which you can exchange one kind of digital asset for another based on the market value of the given assets. In this way, cryptocurrency exchanges are much like the stock market. Some platforms also allow their users to trade fiat currencies, like US dollars, for cryptocurrencies.  The platform Kraken, for example, currently accepts funds in the form of USD, JYP, CAD, and GBP, and supports trades with Monero, Ripple, and Litecoin as well as Bitcoin and Ethereum.

Starting an exchange will require a lot of funding and we are often talking about millions of dollars. Most people will not be able to start their own exchanges but there are projects like Burstex which allows you to earn profits from the exchange by holding their BEX tokens so you are almost like a shareholder. Burstex is the first crowd funded exchange and you will get dividends from the exchange’s profits based on your holdings of the BEX token. Cryptocurrencies are very volatile and it is very risky but owning shares in Burstex is like owning shares on an exchange.

But how does a cryptocurrency exchange actually generate a profit?  These types of digital asset exchanges have four major revenue streams: commissions, listing fees, market making, and fund collection for IEOs, STOs, and ICOs.  As with typical stock market exchanges, these digital currency trades have associated commissions, or fees for the service of facilitating a trade between the buyer and seller.  Digital asset exchanges may also introduce a token and coin listing service to drive initial revenues and charge a listing fee for this service. The last of these for methods of driving exchange revenue is to equip the platform with an IEO module, allowing other companies to organize token sales.

If a cryptocurrency exchange is able to attain multi-billion dollar volumes, these profits become very significant.  The top exchanges operating in the industry today actually boast daily trading volumes in the range of hundreds of billions of US dollars, thereby generating upwards of eight figure commissions for successful exchanges.  One key thing to keep in mind is that variables such as volume of trades and price of commissions both affect profit, with lower commissions and lower trade volumes being associated with lower profits.  The exchanges that generate the most profits are generally the exchanges with the highest volume of trades and those that charge more for the opportunity to exchange digital assets on their platforms. According to estimates calculated by Bloomberg News, the top ten cryptocurrency exchanges are bringing in as much as $3 million per day in profit. That’s not only a tidy sum, but a testament to how quickly cryptocurrency has become profitable in comparison with other industries.

As more competition enters the crypto exchange platform market, it’s difficult to say whether or not the current top ten cryptocurrency exchanges will remain at the top. Many exchanges are finding ways to quickly adapt to the market’s changing landscape, including decentralization and offering fiat-to-crypto exchanges. Another example, is that exchanges are listing more DeFi (decentralised finance) projects on their exchanges due to its increased popularity. Since these projects have a lot of trading volume, this will help increase the exchange’s profits. One thing remains clear, however, especially in light of the innovative user acquisition strategies used by exchanges and the overall increases in the number of listed cryptos: cryptocurrency exchanges aren’t going anywhere and will in all likelihood remain both competitive and highly profitable, at least for the foreseeable future.

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